What is the difference between Bonds and Guarantees?

Guarantees versus Bonds

performance bond application

Bonds and Guarantees are many times used synonymously with each other. That’s because, at the very heart of the matter, they are the same. A guarantee is provided directly by a company. This is where the company provides assurance that what it is doing is proper and they are assuring you that they will perform according to the terms of the contract or agreement.

A bond is slightly different. A bond has three parties. So, instead of the company guaranteeing you directly, another party steps in to provide the assurance. In a normal construction performance bond situation, the contractor goes out to a surety to get the bond. This surety is typically a large insurance company. So, the surety provides a bond so that if the company does not fulfill the terms of the agreement, the bond can be called by the owner of the project (the Obligee) and then the surety company will go after the contractor for payment. A bond provides an extra level of benefit and is more powerful than a typical guarantee.